HONG KONG (Reuters) - Hong Kong bank Dah Sing Financial Holdings Ltd (>> Dah Sing Financial Holdings Ltd.) has agreed to sell its insurance business to China's Thaihot Group Co Ltd (>> Thaihot Group Co Ltd) for $1.4 billion (0.96 billion pounds), a source with direct knowledge of the matter told Reuters, in the city's most expensive insurance deal ever.

The deal is the latest in a series of insurance M&A launched by Chinese investment firms as they seek to diversify risks out of a slowing economy. Chinese insurers and investment firms are also trying cut exposure to the renminbi on worries the currency may weaken further, eroding the value of their investments.

But the expansion out of their home market is coming at cost. Thaihot, a relative newcomer to the Hong Kong financial circle, is paying nearly three times Dah Sing insurance's 2015 embedded value, said the source, who did not want to be named as the deal has not been made public.

In comparison, Belgian insurer Ageas last year sold its Hong Kong insurance unit to China-based asset manager JD Capital in a deal that was valued at 1.3 times the embedded value of the business.

Embedded value is the net asset value of an insurer plus the present value of potential future profits from existing life and health insurance contracts.

Thaihot, whose business interests include real estate and financial services such as insurance, did not respond to telephone calls and an emailed request for comment outside regular business hours. The final deal value is nearly 40 percent higher than initially estimated.

If closed, it will add to a series of outbound Chinese acquisitions, which has reached $103 billion this year, against last year's record $113 billion, Thomson Reuters data shows.

Hong Kong is a developed life insurance market, with a life and health insurance premium to GDP ratio of 13.4 percent in 2015, the second-highest in Asia, according to Swiss Re. Still, the market offers strong growth, with premiums forecast to grow 9.2 percent in 2016, making it attractive to new entrants.

Dah Sing is one of the last remaining family-run banks in Hong Kong and it has network of 70 branches in Hong Kong, Macau and on the mainland. A Dah Sing spokeswoman was not available for comment. The bank said in January it was reviewing strategic alternatives for its life insurance unit.

Thaihot has emerged as a surprise winner for the asset in a hotly contested auction that drew bids from as many as 20 firms, Reuters previously reported. Several global insurers including Canada's Sun Life Insurance Inc (>> Sun Life Financial Inc), Chinese property firm Country Garden Holdings Co (>> Country Garden Holdings Company Limited) and China Taiping Insurance Holdings Co Ltd (>> China Taiping Insurance Hldgs Co Ltd) had expressed interest in the sale.

Dah Sing's shares are up about 32 percent since the company announced a strategic review of its insurance business in January this year, strongly outperforming 5.8 percent rise in the broader Hang Seng index <.HSI>.

(Reporting by Denny Thomas; additional reporting by Sumeet Chatterjee; editing by Jason Neely and David Evans)

By Denny Thomas